TMTpost: Has The New Era Of The Chinese Film Industry Come Yet?

Fundamentally, filming is more like doing businesses. What Internet companies such as BAT are attempting to do is nothing but develop a model to make this business more lucrative, and create more possibilities out there.

Editor’s Note:
Internet companies are increasingly upgrading the Chinese film industry. These new entrants, such as Alibaba, Tencent, LeTV and Wanda, are setting up new business models and reforming the film world with skillful capital operation, mature IP incubators and technological innovation. What impact will they have on the future of the Chinese film industry? How should industry leaders embrace these new entrants? The following article, written by TMTpost’s journalist Dong Meiqi and first published in the October issue of Business Value magazine, might give you a clue.

In the eyes of BAT, the three leading tech giants in China, a film is not merely a piece of art, but also a product, and even a commodity. Today’s Internet companies are not satisfied with merely investing in a film, but begin to make full use of the IP of a film, explore all its potential, adopt various marketing strategies, etc. Indeed, they are transforming the way Chinese film industry used to work.

Fundamentally, filming is like doing business, so making money is one important goal for any film producer. The Internet age will bring to the industry something more than box office success.

The era of Internet + Film

Chen Hongwei, a well-known film producer and critic, finally decided to call his team at Tencent Films “Mighty Dream Studio”, also the name of a movie club he established at college. He first encounter the phrase “mighty dream” in a poem written by Zhuge Liang, a chancellor of the state of Shu Han during the Three Kingdoms period: “A mighty dream, who is to awake? I know it for long.” For him, filming is similar to making dreams for audience, and film producers get devoted to their job with a dream in mind. Since entering the filming industry, Mr. Chen has always held the belief that making dreams for audience and conveying his own ideas and dreams to others, not getting famous or making money, was his ultimate goal. Few people can understand the sense of achievement he received by making films.

Chen Hongwei, a well-known film producer and critic

After co-producing several blockbusters, such as Beijing Love Story, One Hundred Thousand Bad Jokes, Running Man, Go Away Mr. Tumor, he decided to leave Wanda. Mr. Chen was already the vice president of Wanda Films before his departure. Over the years, he has gained rich experience in the film industry, from marketing, market planning, to producing and theatre chain managing. Since three years ago, other film companies have been attempting to poach him, but he declined all their offers. This time, however, he accepted to join Tencent Films because he sees chances to make his belief into reality there.

Two weeks before Tencent Films was officially launched, Chen Wu, CEO of Tencent Films, told Mr. Chen: “Name your studio, as you like.” By then, Liu Fuyuan and Chen Yingjie had established their own studio at Tencent Films, Blackbody Studio and Interactive Entertainment Studio respectively.

All of them are great producers in the Chinese film industry. They were invited to both manage their studios and produce their own films. In the process, they can both cooperate with professional directors and screenwriters and help nurture future producers, directors inside their own studios. In addition, they are supposed to read screenplays, assess return on investment and lead their studios towards a favorable direction, as did a product manager.

“China lacks competent product managers, not directors and screenwriters,” Chen Yingjie, producer of the blockbuster Roco Kingdom 4, told Business Value magazine. To some degree, these three studios are like three tiny but fully-equipped film companies.

On the launch event of Tencent Films, Chen Hongwei appeared on stage as the vice president of Tencent Films. He announced that he’s already been negotiating over several IPs and started to work at Tencent Films.

However, Tencent Films was not alone. A week ago, Tencent also launched Tencent Penguin Picture, LeTV issued its blueprint for the future films market, and iQiyi’s spokesperson disclosed its IP purchase plan. It seems as if Internet film companies, all of a sudden, have surpassed traditional film companies and all the hot-spot topics over the film industry were related to Internet concepts such as IP, sidelines, derivatives and big data.

Has the new era for the Chinese film industry come when Internet giants including BAT, capital and investors are all heading towards?

If the history of the commercialization of the Chinese film industry dates back to 1980s, then 2010 marks the first revolution of the industry within the past four decades. It was in 2010 that annual box office hit 10 billion RMB (around 1.6 billion USD), with an annual growth of 50%. Before 2010, box office used to increase steadily by merely 20% to 35% annually. Successful commercialization expedited the process the Chinese films went abroad. It was expected at that time that the Chinese film market would soon become the largest in the world.

The burgeoning film industry led to the development of the entire industry chain, even capital investors and Internet companies began to cash in.

The cooperation between BAT and film companies began in 2011, though limited to capital investment. Gradually, the role of Internet companies began to change.

In 2011, Tencent bought 27.8 million shares (amounting to a 4.6% stake) in TV producer Huayi Brothers Media for around 450 million RMB ($69.2 million). In July 2014, Shenzhen Shiji Kaixuan Technology Company Limited, whose legal person is Ma Huateng, bought 6.7 million shares (amounting to a 4.08% stake) in New Classics Media. In November 2014, Huayi Brothers declared plans for private placement of 146 million A-share common shares (24.73 RMB per share), whose net value will be 3.573 billion RMB. Offering targets included Hangzhou Ali Venture Capital, Ping An Asset Management Co., Ltd. (PAAMC), Shenzhen Tencent Computer System Company Limited and CITIC Construction Securities Co., Ltd. In the end, Tencent became the second largest shareholder of Huayi Brothers and added its stake to 8.06%. In March 2015, Tencent again invested 100 million RMB in Linmon Pictures, a startup company focused on film content production.

In September 2014, Baidu Finance collaborated with CITIC Trust, China Film Co, Ltd, DeHeng Law Offices and carried out a Yu Le Bao (Alibaba’s digital entertainment division)-like consumer finance product called Baidu Film Finance. In October 2014, Huace Film&TV, a production and distribution company, financed 2 billion CNY from five companies, among which Dinglu Zhongyuan, whose legal person was Baidu’s vice president Wang Zhan and whose founder was former Baidu’s vice president Liu Jiping, accounted for 1 billion CNY. In June 2015, Baidu bought 1.59% share of SMI Holdings Group for 150 million HKD.

In 2014, Hangzhou Ali Venture Investment Co., Ltd. subscribed 61.7 million shares of Huayi Brothers for a total of RMB1.53 billion. After the completion of the deal, Jack Ma and Hangzhou Ali Venture Investment would together own 8.08% of Huayi Brothers and became the second largest shareholder of the company, together with Tencent, which will also own 8.08% after the deal. The first group of investment vehicles available through Yu Le Bao includes the movies “Tiny Times 3” and “Tiny Times 4,” directed by Guo Jingming and starring Yang Mi; “Wolf Totem,” a movie based on a best-selling fiction starring William Feng and Shawn Dou; and “Mofan Xueyuan,” the world’s first celebrity-themed, large-scale social networking game in which fans can interact with Fan Bingbing. In March 2015, after another round of private financing, Alibaba became the fourth largest shareholder with 4.47% share of the company, while Jack Ma increased its share to 3.59% and became the fifth largest shareholder. Also in March, Alibaba invested 2.4 billion CNY in Enlight Media and became its second largest shareholder.

After a series of capital operation and financing, BAT have become unwilling to stand backstage. 2015 witness the pouring entrance of Internet companies into the Chinese film industry. By establishing subsidiaries such as Tencent Film, Penguin Film, Ali Film and iQiyi Film, BAT have indeed stepped in to the industry. At the same time, Chinese Internet companies such as LeTV, Xiaomi have also been expanding into the industry. It is fair to say that the Chinese film industry has been fully connected to the Internet industry, which will certainly usher in an era of Internet + Film.

A film production model centered on IPs

Why Internet companies are so keen in establishing their own film studios and companies? As a matter of fact, BAT are richer in promising IPs and screenplays than traditional film companies.

For a long time, films were produced as follows: first, a director must have a great screenplay; then he or she needed to look for investment, producers, actors and set up an entire team to shoot the film; at last the film would be released to the public. Audience used to have absolutely no say in the process. That’s why some people might find the plot, design and denouement of the film unsatisfactory. In a sense, filming was like gambling in the past, and no director could foretell if a film would appeal to the audience or not.

Chen Wu, CEO of Tencent Film, told Business Value how a film would be produced by a “product” manager at Tencent Film as follows: first, he or she would choose an IP out of Tencent’s IP pool; then Tencent’s own three studios, partners such as Legend Film, Beijing Film Academy, China Film Association would join together and produce films based on comments, ideas collected from Internet literature fans, cartoon fans of the IP. “We dub the process as big-data filming,” Mr. Chen said proudly.

Chen Wu, CEO of Tencent Film

Yang Lei, appointed by Alibaba Group as vice president of Alibaba Film, preferred to observe the Chinese film industry from the aspect of an Internet company. For him, “the reason why lots of film companies failed to make some of their best blockbusters in the box-office is that they don’t know what the market and audience need most. The central concern for Internet companies, however, are who are potential users of our products, what convenience can be brought to our users by our products and whether our users are satisfied with our products and services? While traditional film companies do things as they are, Internet companies are centered entirely on users.” Internet companies have changed several key aspects in traditional filming models, including how screenplays are written. Oftentimes, different project teams are supposed to develop their own IPs at the same time, so all of them have the opportunity to get their IPs filmed and released in box-office.

“We are moving from a tiny four-storey building besides Kunlun Hotel to a new building, because this building is too small to hold our teams,” Yang Lei told Business Value. When invited to visit the office area, we found that Alibaba Film’s employees’ were not divided into different cubes but supposed to communicate and discuss frequently during their work. At present, film, TV, e-commerce, distribution and International cooperation are the five main businesses of Alibaba Film. However, similar to product development centers in Internet companies, these five sectors of businesses are completed by five project committees, not departments. For example, the Film Project Committee is made up of producers, product managers, screenwriters and release personnel, among whom product managers are supposed to lead and monitor the operation of the entire committee. However, employees are ranked in hierarchical orders in traditional film companies, which could undermine the efficiency of the entire company.

“I agree with what my boss Jack Ma once said: ‘Those who fight in the forefront should be in charge’. The management board should guide the company in a larger picture, while the five project committee should be able to solve problems by themselves. Different from traditional film companies, the management board in Alibaba Film are supposed to take charge only when they can’t solve the problem,” Yang Lei.

Mission: Impossible: Rogue Nation is definitely the most successful IP Alibaba Film has co-developed in 2015. This is the first time for a Chinese company to cooperate more thoroughly with foreign film producers. C-production no longer means simply to add several ads and have Chinese actors and actresses starred in a film.

Yang Lei, vice president of Alibaba Film

Baidu has also been expanding its business in film production, marketing and copyright purchase business via its video service branch iQiyi.

Up till now, there are already 6,500 films in iQiyi’s film library. In addition, iQiyi entered into an agreement with Paramount Pictures that would make a wide selection of films and television shows from Paramount’s library available on demand. Yang Xianghua, the vice president of iQiyi, revealed to Business Value, the first time to a media agency, the way iQiyi bought films: “iQiyi has developed a special algorithm to select out of thousands of Hollywood films every year.” According to him, the algorithm would generate a list ranking the popularity several films based on search data, users’ gradings on Douban, MDV and other platforms. It is based on such an algorithm that iQiyi selects which films to buy or not.

Big-data was also adopted by iQiyi to choose which IP should be developed. Up till now, iQiyi has co-produced several films including Gone With The Bullets, To The Fore, Two Thumbs Up, Wild City, Office, Lady Of The Dynasty, etc.

Among these films, P.K was the only one iQiyi acquired the exclusive broadcast right when the film wasn’t even released in theatres. iQiyi chose the film because its algorithm predicted that the film would become quite popular among audience. Mr. Yang added that: “As for some films, the revenue from box office might be lower than that from video sites. Even producers of films that hit over 100 million RMB in the box office might find themselves making more money from video sites, let alone low-budget ones, whose producers might make no money in the box office.”

A film production model that is centered on IPs is going to reform the course of the Chinese film industry.

Yang Xianghua, vice president of iQiyi

Filing has become more like doing businesses

For traditional filmmakers, a film is more like a piece of art. Yet, after the change of times initiated by the reform and opening up policy, filming is more like doing businesses and a film is just like a product.

In the conference hall of a five-star hotel located around Xuanwu Men of Beijing, while Lu Chuan never stopped talking about the anecdotes when filming Ghost Blows Out: The Nine-Story Demon Tower in the press conference, what really made the film different was the large number of sideline products developed after LeTV invested in the film. After Li Wei, the director of LeTV Sideline Product Development Division, appeared onstage, he introduced to the audience a series of amazing products, such as a T-shirt radiating ghost light in the dark, a belt that can be transformed into a set of tools, a pair of pink and a grey monster-like candies that can be turned into bracelets for couples, etc.

Today, online movie ticket booking remains the main business of LeTV Film, yet sideline product development has also become an important component of LeTV’s ecosystem. Moreover, LeTV focused on the devices to watch movies and carried out its own 50, 60, and 70-inch 3D TVs.

LeTV has diverted its focus from merely the box office to its own watching devices, sideline products so as to earn much more from various channels and sources.

It is fair to say that Alibaba Film is the more experienced one among all the Internet company-based film companies. In terms of sideline product development, Alibaba is currently working closely with business owners on Alibaba’s e-commerce platform and develop sideline products based on big data collected from thousands of millions of its users. For example, when the film Avengers: Age of Ultron was released in Chinese theatres, Alibaba collaborated with Disneyland and sold official authorized sideline products on Tmall, which became so popular among Avengers series’ fans.

This April, Alibaba Film announced that it had acquired YKSE, the largest supplier of theatres’ ticket system in China, for 830 million RMB. As the number one supplier of theatre ticket management system, chain store management, and mobile ticket-booking system, its services and systems have already been adopted by over 1,500 theatres (a third of the total number of theatres nationally) across China. The announcement signaled that Alibaba had got access to the large pool of theatres across China. Still, how will Alibaba Film make use of its resources? Mr. Yang revealed that they have already been developing related apps and hardware products, among which one product had been proven quite effective at least in Beijing’s theatres.

Mr. Yang showed us the product in a tiny screening room of Alibaba Film. It was similar to traditional ticket machines but has a variety of new services in the interface, including selling popcorn, coke, and sideline products such as the same jackets in Mission Impossible 5.

“It is more like a social product. The ultimate goal of Alibaba Film is to encourage people to go to the theatre where they can not only watch movies but also take part in social activities. While theatres might not afford such services, such as selling sideline products (since they will also need to manufacture, deliver and store them), Alibaba Film is capable and willing to do so and help theatres make more money while spare much effort,” Mr. Yang suggested.

For example, Alibaba Film has cooperated with some theatres in Beijing to enable movie-goers to enter the screening hall by scanning QR codes, which could save lots of time and effort for theatres. In addition, with the automatic selling system in the machine, theatre managers can better monitor the sales and stocks of popcorn, coke and sideline products and replenish the storage in time.

Tencent Film’s CEO Chen Wu reiterated that Tencent Film and Penguin Film were both based on Tencent and was going to cooperate with each other in various areas. “We hope to repeat the ‘Disney and Marvel’ model in the Internet world and integrate resources and contents from the literature&cartoon and film sector and co-develop super popular IPs together with Penguin Films,” Mr. Chen suggested.

As a matter of fact, the sector where Disney and Marvel’s cooperation proved most successful is sideline product development.

At the same time, since Tencent also owns a huge user base, it certainly will have a say in this new era. By the way, Tencent has announced that it would team up with War of Warcraft and set up an online social networking platform for its fans and renew the traditional marketing strategies in this new media era.

After a film is produced and released in theatres, it is also important to win audience in theatres. At present, Tencent Film has joined Wanda Film and initiated a “Tencent Interactive Theatre Plan”. According to the plan, Tencent would co-explore the potentials in diverse areas, such as traffic management, e-sports events, interactive activities, interactive marketing, etc. For example, they once allowed audience to watch different results of Rock Kingdom 4 by shaking their phones, which was quite new to Chinese audience and became quite a fad for some time.

“In the future, audience will go to the theatre not merely to watch movies. I predict that at that time film will become the first step to raise the public’s interest in an IP, which will be further developed into games, cartoons and literature to reach a wider audience. In a word, IP is the center of everything at that time, and every fan has a say in how an IP should be developed then,” Mr. Chen predicted.

How will films be produced in the future?

Speaking of the future of the Chinese film industry, Yang Lei predicted that the traditional way of thinking over film production would be reformed entirely. “In the past, it would be rude to refer to a director as a product manager, but this is exactly what a director should look like in the future,” he suggested. At that time, huge investment, well-known producers and superstars won’t guarantee that a film will become a blockbuster, as can be seen in the overwhelming success of several low-budget Internet company-produced films such as One Thousand Bad Jokes, Go Away Mr. Tumor, A Hero Or Not, etc. in the past two years.

Shao Xiaofeng, the chairman of Alibaba Film, predicted on a board meeting in Hong Kong that:

“We have every confidence that China will become the largest film market in the world in the next 5 to 10 years. The ultimate goal of Alibaba is to get rid of the barriers in this market and make it easier for people who are interested in this business to make their ideas into reality and benefit from their ideas.”

Now that the landscape of the Chinese film industry has already changed, we might expect more surprise in the industry in the near future.

Internet companies such as Alibaba, Tencent, Baidu and LeTV didn’t mean to reform the film industry at first, but as they expand their businesses and seek for more profit, change comes naturally. Only when the film market is large enough can the entire industry be upgraded. Only when high-quality IPs are developed one after another can the Chinese film industry become a really lucrative business.

In our interview, all the respondents agreed that cooperation, instead of competition, remains the rule in the Chinese film industry. In addition, revenue from the box office still took up over 90% of the total revenue on the whole, while revenue from the box office, sideline products and commercial development accounted for similar shares in the North American market. They all believed that there remained huge room for Internet companies to make a difference and upgrade the entire industry.

Over the turn of this year, several Internet company-produced films will be released, including Alibaba Film’s Ferrymen, The Third Way Of Love, Little Door Gods, Tencent Film’s World of Warcraft, CRI ICAL and some Internet company-sponsored films such as Lost In Hong Kong.

While we can still remember what Yu Dong, the president of PolyBona, predicted during last Shanghai International Film Festival, saying “film companies will be working for BAT in the future”, BAT have successfully penetrated in the Chinese film industry and been integrating resources out there in 2015. However, when we asked Mr. Chen and Mr. Yang if they thought Yu Dong’s prediction has proved true, they suggested that “As a matter of fact, Internet companies have always been working for the Chinese film industry.” Concepts such as pool of IPs, big data, Internet marketing, sideline product marketing, online ticket-booking, SNS among fans, were all developed to better meet the needs of audience.

“Tencent Film is open for any cooperation with other Internet companies over the development, management of IPs, reforming the way films are produced and improving watching experience, etc.,” Chen Wu spoke quite frankly to Business Value. Since the very beginning, Internet companies have been contributing new ideas to the Chinese film industry. At present, they are gradually developing an entire new way of filming to reform the industry. Fundamentally, filming is more like doing businesses. What these Internet companies are attempting to do is nothing but develop a model to make this business more lucrative, and offer more possibilities out there.

[The article is published and edited with authorization from the author @Dong Meiqi, please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at ECHO), working for TMTpost.

Originally published at

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